Theresa May has nothing to fear from foreign investment in nuclear. Here’s why…
New Nuclear Watch Europe (NNWE) was established under my chairmanship at the end of 2014. Its purpose is the promotion of new nuclear capacity across Europe and further afield.
As such, although an industry funded body, NNWE is not a trade body but more a campaigning organisation. Our philosophy and core principles are described in more detail on our website: www.newnuclearwatch.eu.
Our starting point is that tackling the challenge of climate change requires almost total decarbonisation of the electricity industry by the middle of this century. That goal can only be achieved with a substantial contribution from the nuclear industry. Nuclear power is therefore an important element in the energy mix in many countries.
However, in addition to being a reliable, low carbon and very safe source of electricity, nuclear must also show governments, taxpayers and consumers that it offers good value for money. This is necessary because of current unusually low gas prices and falling costs in renewable technologies such as solar and wind power.
In Britain, controversy has surrounded the high strike price which the Government has agreed for Hinkley Point C (HPC). What appeared a reasonable deal during negotiations four years ago, when the cost of alternative sources of electricity was much higher, looks less competitive now.
In addition, EDF’s continuing technical problems with the EPR have created doubts about when, or even whether, HPC will actually come on stream. Against this background, NNWE has argued strongly for consideration to be given to alternative cheaper nuclear technologies.
However, any fresh setback at HPC will be seized on by opponents of nuclear as evidence of the industry’s inability to deliver new capacity. We have therefore supported the project, even though the value of the baseload power it can provide will be less if further technical delays occur. We have suggested that a reduction in the price should be sought if HPC is not in production by 2025.
Nuclear will certainly have been high on the agenda for the bilateral meeting between President Xi Jinping and Prime Minister Theresa May last weekend in the margins of the G20 summit in the lovely old eastern Chinese city of Hangzhou.
Various explanations of the last minute intervention by the Prime Minister to review the HPC agreement have been advanced in the last few weeks. One of the most common – though least rational – advanced by some people who ought to know better is that foreign ownership of a nuclear power station exposes British consumers to the risk of blackouts.
There are two serious flaws in this theory. The first is the inability of its proponents to explain the circumstances in which it would be in the interests of China, or any other foreign owner, to shut down a nuclear plant on whose construction they had just spent billions.
Nuclear power is more capital intensive than almost any other form of energy. All of the huge investment required has to be made upfront during the construction period. This means that almost a decade passes before any return at all is earned on these massive capital outlays, and a second decade will go by before the project produces a net surplus.
A malignly motivated plant shutdown would therefore be financially catastrophic for any foreign investor. Equally important in this case, it would destroy any possibility of future Chinese investment in infrastructure assets in western countries, effectively closing the door on profitable opportunities in many of the world’s most attractive markets.
Furthermore, no commercial objection could be raised to including in the contract a provision that if the generation of electricity from a nuclear plant is halted by the owners for political rather than operational reasons, the reactor could be taken over by the British government without compensation being paid.
The second flaw in the theory is the ineffectiveness of action to stop electricity production. Although the loss of as much as seven percent of the nation’s supply would be uncomfortable and strain capacity for a while, it would not paralyse the economy as effectively as interference in some other foreign controlled infrastructure would.
For a start, other generators would increase their output. Additionally, by the late 2020s, the earliest possible completion date for Bradwell, the nuclear plant which China hopes to control, the capacity of interconnectors to import electricity from continental Europe will be much greater. National Grid could also ensure that the burden of any shortages was shared by consumers nationwide.
Contrast this with the devastation which would result from a closure of, for example, UK Power Networks. This company delivers electricity to the premises of millions of users in southeast England including the whole of London.
Few people have heard of this crucial infrastructure company. It rarely receives attention from the popular media because it does not send bills directly to domestic consumers. Its ownership by a company based in Hong Kong has been accepted for years, without a murmur of protest from the people now clamouring to block Chinese investment in Hinkley.
Yet at the flick of a switch UKPN could impose a total blackout on London. This would inflict far more devastating consequences than the loss of a single nuclear plant could ever achieve. The economic damage alone would be incalculable and there wouldn’t even be a minority British shareholder to protest.
This is not intended to raise any alarms. In my view it is inconceivable that UKPN would ever act in such a harmful and irrational way because it has much more to lose than to gain. But the same arguments apply to other foreign investors too.
So when the Prime Minister discusses these issues with her counterparts, let her concentrate on real concerns such as cyber security, completion date guarantees and proportions of localised supply chain work. These are legitimate subjects for negotiation. Fanciful notions of malign plant shutdowns are not.
The importance of settling the Hinkley question swiftly goes much wider than nuclear, wider even than the whole energy sector. Until the present uncertainty is resolved, every infrastructure investment in Britain is affected because all investors hate uncertainty.
The inevitable consequence is that prospective investors will seek higher returns from any investment they make in Britain. The cost of those higher returns will fall entirely on British consumers.
For that reason, let’s hope that the Prime Minister enjoys a cup of China’s finest tea beside the scenic West Lake with her host President, and returns home determined to get the best deal for the British people. One way to do that is to maintain, on this issue at least, her predecessor’s welcome for responsible foreign investment into Britain and its energy industry.
Tim Yeo was Conservative MP for South Suffolk from 1983 to 2015. He now chairs New Nuclear Watch Europe and the University of Sheffield Industrial Advisory Board for the Energy 2050 initiative. As an MP he served as Shadow Secretary of State for Trade and Industry (2002-03, Chair of the House of Commons Environmental Audit Select Committee (2005-2010) and Chair of the Energy and Climate Change Select Committee from 2010-2015.
Guest blogs represent the views of the author(s), and not necessarily the views of Weinberg Next Nuclear.
New Nuclear Watch Europe (NNWE)
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